See Link to Prior Blogpost - with link to Cautionary Statement
It is not clear if the CMA issued the suspension notice based on KK's request or acted unilaterally. There has been a lot of debate of the appropriateness or justification of the suspension since some shareholders cannot exit their positions. This reminds me of the (failed) BOC takeover bid of Carbacid when the shares of both firms were suspended from trading for 4 years from 2005 to 4th Nov 2009.
The management of KK feels that the Takeover (at least the sale of shares in KK to Puma Energy) will be completed in 2012 which would leave the Minority Shareholders in the cold.
The CMA has to protect the Minority Shareholders by ensuring they are given the right to offer their shares to Puma at a similar price (or value) to Puma as the Key Shareholders. There will be the question about KK remaining a Listed Firm but based on what Puma's actions in Zambia, it seems unlikely if Puma can get 80% of the shares offered to them.
In Zambia, Puma purchased BP's shares in BP Zambia (renamed Puma Zambia) then ran into some headwind. I am not sure of the full details but it seems Puma will make a Takeover offer for the remainder it does not own. Due to lack of Listings in Zambia, the LuSE & SEC seemed reluctant to let Puma Zambia de-list. Furthermore, the price on LuSE has tripled since the sale by BP to Puma so Puma may not have an incentive to pay the market price.
*The LuSE & SEC have also blocked Airtel from delisting Celtel Zambia (in which it bought a majority stake from Celtel International) by buying out Minority Shareholders then de-listing. The shares have been suspended from trading indefinitely as well!
In essence, will Puma pay for 25% (Minority Shareholders) today for what it paid for the 75% (BP's shares) 3 years ago? I don't have all the details but this should be interesting & will it apply to the Kenyan situation?
A high enough price offered by Puma would convince most Minority Shareholders to sell their shares. The ranges vary but Kestrel Capital (a far better outfit than the Not-The-Standard Investicon Skank) who are also acting as advisers to the Key Shareholders did indicate a value of KES 17.25 in their last research report.
My valuation is higher:
- The lawsuit vs KPC. I did not understand why the judges thought the award was too high in view of the 'economy' when the various scams KPC has indulged in are of similar, if not higher, amounts! I will reserve my judgement on their judgement. At a gross value of KES 6bn that is 4/- PBT (2.75 PAT) added to NAV. Of course, it is speculative but KK, is not giving up & seems to have a good chance it will prevail.
- The Annual Report (Chairman's Statement & Comprehensive Income Statement) indicated a large potential loss in 1H 2012 due to Forward Forex Hedges. The net effect may be an EPS of 'zero' for 1H 2012 thus no net effect on valuation going forward.
- Huge real estate exposure in Kenya (especially in Nairobi & Central Province - whatever that is called nowadays) which has been Kenya's most productive areas. *There is even a place named after Kenol - Kenol Township (which I passed through) - near/towards Kangema!* KK has prime real estate for developmental purposes in Addis Ababa (Ethiopia) as well as Rwanda. It is very hard to estimate the gains in RE values but this could easily add KES 3-5 to the NAV as reported.
- The 2011 EPS was 2.21 (diluted). There will always be challenges for KK with the volatile KES, interest rates & oil prices but if that is a normalized EPS [a further discount required for ESOP, Management & CEO options] then using a PER of 10 [based on KK's consistent growth & current depressed market prices] this would be: 2.10 x 10 = 21/-
So if we add the 'business value' of 21/- (should be discounted by cheap/free rents on properties owned or long-term leased by KK) + (potential) award vs KPC + Development Real Estate (includes maximize use of current locations by adding stores, buildings, offices without closing the petrol stations) = 25/- less transaction expenses = 24/- net!